"You have to decide whether or not to invest in the following 3 projects. The cost of capital is 6%.

Project A requires an initial investment of $1,000,000 now. The project will generate cash flows of $50,000 in perpetuity every 6 months, starting 6 months from now. 

Project B requires an initial investment of $1,000,000 now. The project will generate cash flows of $100,000 every year for the next 40 years, starting 1 year from now. 

 Project C requires an initial investment of $1,000,000 now. The project will generate cash flows in perpetuity, starting 1 year from now. For the next 10 years, the project generates $60,000 every year. After that, the annual cash flows will increase by 3% every year. 

 Calculate the NPV for each project. Calculate the IRR for project A and B. If you were asked to pick at most 1 project to invest, which one would you pick? Why? If cost didn't matter, would you invest in both? Why? "

Answer rating: 100% (QA)

To calculate the NPV Net Present Value for each project we need to discount the cash flows to their present value and subtract the initial investment ... View the full answer